The Criticism

Facebook’s in the hot seat. Facebook is catching heat for the way a third party used Facebook data. Cambridge Analytica used data from a Facebook connected app in 2015. This app allowed a developer to harvest data from the friends of those who signed up. This gave them information about 50 million people. Names, occupations, check-ins, posts and more. The public sentiment is that it’s wrong for a company to allow anyone to hand over your data to a third party. Your friend should not be able to do so. Note: Facebook stopped allowing third parties to grab friend’s data in 2015.

It’s believed Cambridge Analytica used this data to help the Trump Campaign. Cambridge Analytica used the profile data with other data to create psychological profiles. They believed these profiles allowed them to better target political ads.

Facebook Is Not Alone

Context is key. Although it doesn’t justify being loose with data, Facebook is not alone. Apple via iOS’s “Allow Access to Contacts”. Google via Android access to Contacts and Google+. LinkedIn. All have allowed developers access to their friends’/connections’ information.

There are companies who have created large databases of our information up for a price. FullContact is a leader in this space. Use their API here to find out what they know about you.

Theories on Public Reaction

Despite the lack of evidence that this targeting was effective, the public is furious. Despite other companies allowing people to share their friends information, Facebook appears to be singled out. I’m trying to put my finger on why now and have some working theories.

Google vs Facebook

Google Search helps you find things. It’s a utility. Facebook is a community of people. Communities like Facebook elicit emotions and sometimes these emotions are negative. When you read hate spewed by a distant friend, you associate that emotion with Facebook. Facebook can be a magnifying glass on your community, and it allows you to see the warts.

Facebook is also a mirror. Facebook can be addictive. It makes it easy to see you may care about what others think about you more than you care to admit. Instead of focusing the energy on improving, many choose to blame Facebook.

The Trump Connection

The Trump association to the public outcry is hard to deny. Obama’s campaign’s use of friend’s data has not caused an uproar. Obama’s campaign did not violate Facebook’s Terms of Service. But the app did use data that the “friend” didn’t approve of. Like many things connected to Trump, his association exasperates the public reaction.

Reality – Facebook must serve their users. Without the 2 billion users, there is no one to advertise to. Zuckerberg has proven he is in it for the long haul. Zuckerberg will continue the balancing act of pleasing the 2 billion users. Not to mention the media, governments, businesses and advertisers.

Google, of course, poses similar threats to the journalism ecosystem through its own digital advertising industry. But Googlers can also make a strong case that Google makes valuable contributions to the information climate. I learn useful, real information via Google every day. And while web search is far from a perfect technology, Google really does usually surface accurate, reliable information on the topics you search for. Facebook’s imperative to maximize engagement, by contrast, lands it in an endless cycle of sensationalism and nonsense.

– Matthew Yglesias, Vox

Myth –Facebook has no value to the spread of information. Facebook focuses on maximizing engagement.

Fact – Facebook provides a platform for discourse. Those posting “Fake News” may learn from the hive.

Facebook may have focused on maximizing engagement in the past but no longer. Zuckerberg has said the new goal is “to make sure time spent on Facebook is time well spent.” Zuckerberg understands users will leave if he maximizes engagement in the short-term

Facebook Regulation

Facebook is a public company in the United States and used all over the world. Facebook is under SEC, FTC, EU and many more regulations. Will new regulations form that will affect Facebook? Yes. This has always been the case. The fear the market is having now about regulation seems irrational. Facebook makes money by allowing targeted advertising. Facebook does not make money by selling (or giving away) data.

Regulation as a response from this news may make Facebook stronger. As we’ve seen with Cable regulation, regulation can create a cycle that makes it more difficult for startups to challenge an incumbent.

What type of regulation makes sense to protect user data? Governments will most likely demand tighter control of user data. This may mean no exporting of data. Less data portability makes it harder for an incumbent to bootstrap their service using Facebook data.

Incumbents will have to spend money and time to meet any new regulations around user data. Facebook has the money and resources to do this easily.

Facebook Valuation

Facebook’s PE (price to earnings) is 25. In comparison, Google’s is 31, Microsoft’s is 26 and Amazon’s is 352. Compare that to their growth rate the past ten years. Facebook’s revenue growth rate per year has been 80%, Google’s 24%, Microsoft’s 7% and Amazon’s 29%. Facebook is growing quicker than its peers yet the market is valuing its potential lower. The S&P 500 has a PE of 25. Is Facebook’s growth going to be the same as the S&P 500 like currently valued? There is sentiment to back up this valuation, and sentiment alone. Sentiment and reality aren’t always connected.

Facebook’s core business has continued to grow like a weed. Instagram continues to grow and make revenue. WhatsApp and Oculus provide little to no revenue but have great potential. With a PE at 25, it’s as if the market values these assets at 0.

Bottom Line

Facebook discontinued the level of access that caused this leak in 2015. There is no evidence this targeting affected the election. The public outcry is not without merit but an overreaction. Few will #DeleteFacebook and those who do will come back or increase their Instagram use.

Facebook will continue to be a lightning rod for criticism. Facebook will continue to improve their PR game. People will continue to use Facebook. Facebook will continue to grow, make more money and be more of an influence on society. Zuckerberg will continue the balancing act.

Note – I own Facebook shares and I’m bullish…if you can’t tell 🙂

2 Comments on “In Defense of Facebook”

[…] took bearish stances on Facebook the last couple of months. I decided to go against the grain and defend them. As Facebook’s latest earnings report shows, the media once again overreacted. And there you […]